What’s the outlook for the property market?

We may be at the end of the rate-hiking cycle. What does this mean for the property market? Three experts weigh in.

Peter Koulizos

As it seems that we are at the end of this rate hike cycle, it has some implications for the residential property market.

Buyers have more confidence when they buy a property because they feel that the interest rate on the mortgage won’t be higher than when they first put in their offer or bid at auction. This will mean that more buyers will venture out and as a result, more properties will be bought.

You would think that with a greater increase in buyer activity, prices should increase significantly. At the same time, as more buyers are in the market more sellers are putting their properties up for sale. Because demand is increasing at the same time the supply of property for sale is increasing, whatever price increases we have will not be as great as some people are anticipating.

Some people might think that property prices will drop as more and more sellers put their properties on the market. However, despite this increase in the supply of property for sale, property prices will not drop significantly because property owners are not forced to sell their properties at a bargain price. With unemployment at record lows, most sellers are in a position where they can sit and wait to get a reasonable price for their property.

I doubt that we will see another increase in interest rates within the next 12 months but if we do, the biggest change we will see is that demand will decrease because buyer activity will slow down.

In summary, with an end to interest rate hikes home buyers will become more active thus pushing prices up. However, prices won’t increase significantly because, at the same time, more sellers will put their properties on the market.

Peter Koulizos is a Lecturer – Master of Property at the The University of Adelaide and the author of several books.

Margaret Lomas

When it comes to the question of whether the property market will continue to grow when rates moderate, there are many factors to consider over and above just interest rates.

Affordability is still the major issue that we are facing and, until wages begin to grow, we will soon be reaching an affordability peak in our major capital cities.

In addition to this, as inflation moderates, we can expect unemployment to rise, and this uncertainty generally signals a period of low, or no, growth in our top-end markets.

Conversely, times like these often bring focus to affordable markets, and I’d expect to see more growth in Brisbane, Adelaide and Perth, as well as in NSW and Victorian regional markets

These affordability issues will impact most greatly in Sydney. We are now seeing even second home buyers reach the end of their borrowing capacity, and banks still building in considerable buffers to their lending criteria. Without the capacity to borrow the funds needed to meet increasing values, we will see fewer people in this market and more relative supply.

We are, however, seeing an uptick in investor loan approvals and, as investors tend to invest widely and not just in their own area, this will bring more demand into affordable markets that have strong rental yields. Watch those smaller capital cities and larger regions for the impact.

It is foolish to relax and think rate hikes are at an end. Interest rates are still significantly lower than they were for a good number of years during this century’s noughties and early teens, so I wouldn’t be buying and holding my breath for a sudden reprieve in rates.

There is an even chance of another rate hike should inflation increase again, which will definitely scare some buyers. It will show buyers that you cannot know exactly where rates are going from one month to the next. This means that only buyers with a considerable affordability margin will still be willing to jump in – others will watch and see what happens next. It will take a few interest rate cuts to regain full confidence and to see impetus in our expensive markets again.

Margaret Lomas is a qualified financial and investment property adviser, and the founder and director of Destiny Financial Solutions. She is also the author of nine books.

Eliza Owen

National home values did begin rising again from February this year, despite further rate hikes in February, March, May and June. Having said that, the recovery lost pace through June. The June rate rise in particular was a bit unexpected and knocked some momentum out of the market.

While home values are rising, it’s a thinly traded upswing, with sales volumes steadying a bit below long-term averages, rather than seeing a stellar pick-up. Because high interest rates have put a substantial constraint on borrowing capacity, generally there may be fewer buyers in the market. However, it may see activity remain from more downsizer buyers who don’t need to borrow a lot to buy.

This is already reflected in ABS data, which showed lower volumes of finance borrowed through June and July, even as housing values continued to rise. APRA data has shown an increasingly lower proportion of new housing finance secured with high loan to value ratios, suggesting buyers active in the market are less reliant on finance.

With interest rates now most likely on hold, home values will probably keep rising steadily because supply levels are so low, and housing demand is elevated because of the net overseas migration position.

There is a very slim possibility of another rate rise at this stage, and that could knock the market back into negative territory. It’s a bit of a fragile recovery at the moment with headwinds around weaker economic conditions and rising unemployment.

Eliza Owen is the Head of Research at CoreLogic Australia. She unpacked housing affordability on the TEDX stage, and has been a regular commentator for The Sydney Morning Herald, The Age, the ABC and commercial radio and television.

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